Industry could see more M&A activity this year, outlook report says

The Canadian insurance industry could see more merger and acquisition activity in 2013, in part because of continuing low investment returns, suggests a new outlook report from Aon Risk Solutions.

Overall, the market will remain stable in 2013, and insurers are expected to continue showing underwriting discipline this year, notes the company’s 2013 Canadian Insurance Market Report.

However, the current low interest rate environment, which looks set to continue at least in the short term, means insurers must find “better ways to invest and deploy capital,” which could lead to more M&A activity this year, says the report, which provides breakdowns of pricing, coverage and capacity provincially and by several markets. There is still significant competition among insurers, though, the report adds.

Last year also saw a moderately low level of natural catastrophes, apart from Hurricane Sandy, from which loss figures aren’t yet finalized. That has allowed the Canadian market to have strong capital levels, the report notes.

Regulation requirements going forward will also be a key issue this year, Aon says. “In addition to potential impacts of Solvency II regulation, Canada’s federal insurance regulator, the Office of the
Superintendent of Financial Institutions (OSFI), is proposing guidelines that will impact capital assessments as well as the probable maximum loss (PML) calculations for earthquake exposures,” the report notes. These changes will significantly reduce property capacity available for policyholders’ risks, particularly in British Columbia.”

Provincially, pricing, capacity and coverage of various insurance products remain unchanged, including in Ontario’s auto insurance market. Capacity in the marine market overall is increasing, though, the report notes.  

Price, coverage and capacity in cyber liability is also increasing across Canada, the report also notes. “Prices tend to be a function of the type and quantity of data collected by a policyholder’s organization,” it states. “That being said, industry sectors that collect sensitive data will face higher premiums overall, as will any sectors that have poor track records in the area of data control.”

Among various industries, the mining sector continues to face risks, though demand for various minerals is still high. “The most significant risks that mining companies in general will continue to face are a shortage of people with qualified skills, interventions from resource-rich governments, cost inl ations from an operating and construction perspective, commodity price volatility and the social impacts from their activities,” the report suggests.

Going into 2013, the report also notes that insurance market conditions in the public sector will remain soft, while new insurance companies could emerge this year for large construction projects and risks.